Today: Microsoft sells a Silicon Valley subsidiary, and reports that it will use AMD chips in new Xbox send Sunnyvale chipmaker up 13 percent. Also: Alcoa, J.C. Penney and Gilead make after-hours moves, Apple (AAPL) gains in regular trading.
Microsoft sells valley offshoot, AMD may be in Xbox
Microsoft is one of the largest U.S. technology companies based outside Silicon Valley, but its reach can certainly stretch to the Bay Area from Washington, as it did twice Monday.
Microsoft, which recently sold its advertising-technology division to Facebook, unloaded another subsidiary Monday, this one located in Mountain View. Mediaroom, a remnant of the old WebTV company that currently makes software that helps AT&T and other companies pump cable signals through telephone wires, was sold to Ericsson, reportedly for about $200 million.
As with the Atlas deal, Microsoft seems to be whittling down some ventures in order to focus on areas where it believes success is more likely; in television, the dismissal of Mediaroom to a competitor in the same space -- Ericsson will now have 25 percent of the market with its purchase -- shows that Microsoft believes its future with Internet-based television offerings lies with the Xbox.
"With the sale of Mediaroom, Microsoft is dedicating all TV resources to Xbox in a continued mission to make it the premium entertainment service that delivers all the games and entertainment consumers want -- whether on a console, phone, PC or tablet," Microsoft executive Yusuf Mehdi said in a blog post Monday.
While Mediaroom and related services will help cable customers beam their signals to a variety of devices, Microsoft has clearly decided that it will bypass such a direct relationship with cable companies as it seeks to sate consumers' desires for access to entertainment through mobile devices like tablets and smartphones.
"At a certain point, Microsoft had to make a decision on where to place its bets, and it's placed its bets on Xbox," Brett Sappington, director of research at consulting firm Parks Associates, told the Mercury News on Monday.
That bet could be supported by another Silicon Valley company, according to a Monday report. Bloomberg News reported that Microsoft will use an Advanced Micro Devices processor in the new Xbox, which is expected to debut in the next two months.
If true, the news would be a huge boon for the Sunnyvale chipmaker, which has struggled as personal computer sales have declined amid the rise of mobile devices; CEO Rory Read is seeking to diversify AMD's revenue stream, and inclusion in a new gaming console expected to be popular would certainly qualify.
The move would be in addition to AMD's inclusion in the next-generation PlayStation console, which was announced -- but not displayed -- at an event earlier this year. While the two consoles are expected to battle for sales in an environment where cheaper games downloaded to mobile devices have become prevalent, AMD would be a guaranteed winner if both devices use its technology.
Investors seemed excited about AMD's prospects for the first time in quite some time, giving the stock its biggest one-day boost in nearly two years. Shares advanced 13.1 percent to close at $2.59.
Microsoft was not as fortunate -- shares declined 0.4 percent to $28.59.
After-hours blitz of news
Stocks gained overall Monday, with all three major U.S. indexes advancing by at least 0.3 percent, but the real action waited for after markets closed.
Alcoa kicked off earnings season after the bell with its report, the traditional beginning to every quarter's parade of revenue and profit announcements. The aluminum company announced a substantial rise in net income and profits per share, beating expectations, but revenues fell from the same quarter a year ago and were below analyst expectations. Shares gained 1.8 percent in regular trading, but fell more than 1.5 percent in late trades.
While Alcoa's earnings report was expected, J.C. Penney's announcement was a surprise -- the retailer fired CEO Ron Johnson slightly more than a year after bringing the former Apple retail chief in to reinvigorate its sagging reputation.
Johnson, who also helped push Target to its lofty retail perch, had been unsuccessful in his time at J.C. Penney, getting rid of sales popular with shoppers and replacing them with everyday low prices. While the technique may have worked with his previous employers, it turned off Penney's shoppers who had become accustomed to receiving discounts at specific times, and revenues took a big hit.
"The lack of testing did him in," analyst Walter Loeb told Reuters.
Shares jumped more than 11 percent after CNBC originally reported that Johnson was leaving, but then cratered when investors learned he would be replaced by the same man who was fired to make room for Johnson, Mike Ullman. At 3:30 p.m. Pacific time, shares had dropped 10.6 percent since the close; in regular trading, the stock gained 2.7 percent to close at $15.87.
Foster City biotech firm Gilead Sciences (GILD) also moved in after-hours trading following an important announcement. Gilead announced that it is seeking government approval for its hepatitis C medication, acquired in 2011 for nearly $11 billion. After the drug succeeded in clearing the virus for all patients in a study last year, the company fast-tracked it to regulatory approval, and decided Monday to send it to the Food and Drug Administration even faster.
Gilead shares, which dropped 0.4 percent to $47.20 in regular trading, gained 1.8 percent in after-hours trades.
Apple moves higher, Google drops
Apple, which nearly hit a 52-week low on Friday, received a much needed boost of 0.7 percent Monday as Canaccord Genuity analyst Michael Walkley increased his estimate for the company's iPhone sales. The move goes against the grain, as most analysts are slashing their estimates, but it puts Walkley's projection for iPhone sales at exactly the median projection from other analysts, according to Fortune's Philip Elmer-DeWitt.
Google, meanwhile declined 1.1 percent to $774.85, continuing its fall from a high of $844 that has some traders wondering whether the Mountain View search giant is beginning to follow Apple's path. Google is expected to announce Tuesday that it is expanding its Google Fiber service to Austin, Texas, while a report suggested that it may also announce the acquisition of hot messaging app WhatsApp in the future.
Silicon Valley tech stocks
The tech-heavy Nasdaq composite index: Up 18.39, or 0.57 percent, to 3,222.25
The blue chip Dow Jones industrial average: Up 48.23, or 0.33 percent, to 14,613.48
And the widely watched Standard & Poor's 500 index: Up 9.79, or 0.63 percent, to 1,563.07
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.